Q2 2026 Veralto Corp Earnings Call

July 29, 2026

Speaker #2: Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press star zero, and a member of our team will be happy to help you.

Speaker #2: Please stand by. Your meeting is about to begin. Hello, my name is Nikki, and I will be your conference operator this morning. At this time, I would like to welcome everyone to Veralto Corporation's second quarter 2026 conference call.

Operator: Hello, my name is Nikki, and I will be your conference operator this morning. At this time, I would like to welcome everyone to Veralto Corporation's Q2 2026 Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star, then the number two on your telephone keypad. I will now turn the call over to Ryan Taylor, Vice President of Investor Relations. Mr. Taylor, you may begin your conference.

Speaker #2: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during that time, simply press star, then the number one, on your telephone keypad.

Operator 2: If you would like to ask a question during that time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star, then the number two on your telephone keypad. I will now turn the call over to Ryan Taylor, Vice President of Investor Relations. Mr. Taylor, you may begin your conference.

Speaker #2: If you would like to withdraw your question, please press star, then the number two on your telephone keypad. I will now turn the call over to Ryan Taylor, Vice President of Investor Relations.

Speaker #2: Mr. Taylor, you may begin your conference.

Speaker #3: Good morning, everyone. Thanks for joining us on the call. With me today are Jennifer Honeycutt, our President and Chief Executive Officer, and Sameer Ralhan, our Senior Vice President and Chief Financial Officer.

Ryan Taylor: Good morning, everyone. Thanks for joining us on the call. With me today are Jennifer Honeycutt, our President and Chief Executive Officer, and Sameer Ralhan, our Senior Vice President and Chief Financial Officer. Today's call is simultaneously being webcast. A replay of the webcast will be available in the investor section of our website later today under the heading Events and Presentations. A replay of this call will be available until August seventh. Yesterday, we issued our Q2 2026 earnings news release, earnings presentation, prepared remarks, and supplemental materials, including information required by the SEC relating to adjusted or non-GAAP financial measures. These materials are also available on the investor section of our website, www.veralto.com, under the heading Quarterly Earnings. Reconciliations of all non-GAAP measures are also provided in the appendix of the webcast slides. Unless otherwise noted, all references to variances are on a year-over-year basis.

Speaker #3: Today's call is being conducted simultaneously. A replay of the webcast will be available in the Investor section of our website later today, under the heading "Events and Presentations."

Speaker #3: A replay of this call will be available until August 7th. Yesterday, we issued our second quarter 2026 earnings news release, earnings presentation, prepared remarks, and supplemental materials, including information required by the SEC relating to adjusted or non-GAAP financial measures.

Speaker #3: These materials are also available in the Investor section of our website, www.veralto.com, under the heading 'Quarterly Earnings.' Reconciliations of all non-GAAP measures are also provided in the appendix of the webcast slides.

Speaker #3: Unless otherwise noted, all references to variances are on a year-over-year basis. During the call, we will make forward-looking statements within the meaning of the federal securities laws, including statements regarding events or developments that we believe or anticipate will or may occur in the future.

Ryan Taylor: During the call, we will make forward-looking statements within the meaning of the federal securities laws, including statements regarding events or developments that we believe or anticipate will or may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filings. Actual results may differ materially from our forward-looking statements. These forward-looking statements speak only as of the date that they are made, and we do not assume any obligation to update any forward-looking statements except as required by law. With that, I'll turn the call over to Jennifer.

Speaker #3: These forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filings. Actual results may differ materially from our forward-looking statements.

Speaker #3: These forward-looking statements speak only as of the date they are made, and we do not assume any obligation to update any forward-looking statements, except as required by law.

Speaker #3: And with that, I'll turn the call over to Jennifer.

Jennifer Honeycutt: Thanks, Ryan. I want to start by thanking our 17,000 associates for their efforts in delivering an excellent Q2. In Q2, total sales grew 7.6% year-over-year, adjusted EPS increased 19.4%, and we generated robust free cash flow of $328 million. We delivered 4.2% core sales growth, led by Water Quality at 5.7% and PQI at 2%. As expected, core sales growth in both segments accelerated sequentially from Q1 to Q2. We expect year-over-year core sales growth to continue accelerating in the H2 to approximately 5% to 6%.

Speaker #4: Thanks, Ryan. I want to start by thanking our 17,000 associates for their efforts in delivering an excellent second quarter. In Q2, total sales grew 7.6% year over year, adjusted EPS increased 19.4%, and we generated robust free cash flow of $328 million.

Speaker #4: We delivered 4.2% core sales growth, led by Water Quality at 5.7% and PQI at 2%. As expected, core sales growth in both segments accelerated sequentially from Q1 to Q2.

Speaker #4: We expect year-over-year core sales growth to continue accelerating in the second half to approximately 5% to 6%. Based on our Q2 performance and momentum across the portfolio, we raised our full-year adjusted EPS guidance to $4.35 to $4.43 per share, representing 12% to 14% growth year over year.

Jennifer Honeycutt: Based on our Q2 performance and momentum across the portfolio, we raised our full year adjusted EPS guidance to $4.35 to $4.43 per share, representing 12% to 14% growth year-over-year. We continue to advance long-term value creation through strategic bolt-on acquisitions, including last week's acquisition of Alfaa UV, an India-based leader in UV water treatment solutions. I'm excited to welcome our new associates from Alfaa UV to Veralto. We also continue to opportunistically repurchase our shares. So far this year, we have repurchased over 5 million shares for approximately $480 million, or just over 2% of the company. Overall, I'm proud of our team for their outstanding execution through the H1 of the year and focus on our critical few: accelerating growth, optimizing cost, and executing disciplined capital allocation.

Speaker #4: We continue to advance long-term value creation through strategic bolt-on acquisitions, including last week’s acquisition of Alpha UV, an India-based leader in UV water treatment solutions.

Speaker #4: I'm excited to welcome our new associates from Alpha UV to Veralto. We also continue to opportunistically repurchase our shares. So far this year, we have repurchased over 5 million shares for approximately $480 million, or just over 2% of the company.

Speaker #4: Overall, I'm proud of our team for their outstanding execution through the first half of the year and their focus on our critical few: accelerating growth, optimizing cost, and executing disciplined capital allocation.

Jennifer Honeycutt: Looking ahead, with a strong balance sheet and robust cash generation, we remain focused on compounding long-term shareholder value through high quality growth, VES driven execution, and disciplined capital allocation. That concludes my prepared remarks. At this time, we're happy to take your questions.

Speaker #4: Looking ahead, with a strong balance sheet and robust cash generation, we remain focused on compounding long-term shareholder value through high-quality growth, VES-driven execution, and disciplined capital allocation.

Speaker #4: That concludes my prepared remarks, and at this time, we're happy to take your questions.

Operator 2: Thank you. At this time, if you wish to ask a question, please press star one on your telephone keypad. You may remove yourself from the queue by pressing star two. In the interest of time, please limit to one question and one follow-up question. We will take our first question from Deane Dray with RBC Capital Markets. Please go ahead. Your line is open.

Operator: Thank you. At this time, if you wish to ask a question, please press star one on your telephone keypad. You may remove yourself from the queue by pressing star two. In the interest of time, please limit to one question and one follow-up question. We will take our first question from Deane Dray with RBC Capital Markets. Please go ahead. Your line is open.

Speaker #1: Thank you. At this time, if you wish to ask a question, please press star one on your telephone keypad. You may remove yourself from the queue by pressing star two.

Speaker #1: In the interest of time, please limit to one question and one follow-up question. We will take our first question from Dean Dre with RBC Capital Markets.

Speaker #1: Please go ahead. Your line is open.

Deane Dray: Thank you. Good morning, everyone.

Speaker #5: Thank you. Good morning, everyone.

Jennifer Honeycutt: Good morning, Deane.

Speaker #6: Good morning, Dean.

Deane Dray: Hey. We continue to really like this highly efficient release of your prepared remarks and really crazy busy earning season. It's just such a great innovation. Thank you for doing that again, and hopefully, it's a best practice as far as we're concerned. My first question, can we start with the core revenue guidance that's implied, and you referenced it here this morning, the impressive 5% to 6% for the H2. Maybe unpack the drivers and your degree of confidence in this acceleration. Thanks.

Speaker #5: Hey, we continue to really like this highly efficient release of your prepared remarks. And, you know, during a really crazy busy earnings season, it's just such a great innovation.

Speaker #5: So, thank you for doing that again. And hopefully, it's a best practice as far as we're concerned. So, my first question: can we start with the core revenue guidance that's implied?

Speaker #5: And you referenced it here this morning—the impressive 5% to 6% for the second half. Maybe unpack the drivers and your degree of confidence in this acceleration.

Speaker #5: Thanks.

Jennifer Honeycutt: Yeah, thanks for the question, Deane. It's great to have you leading off today. Before answering your question, I just want to say that we are grateful for your decades of thoughtful analysis within both water and industrial markets I think all the way back to when Danaher acquired Hach and Videojet, where I was working at Hach at the time, when we had our investor conference out there. I think you were one of the first analysts that I met. We wish you all the best in your next chapter.

Speaker #6: Yeah. Thanks for the question, Dean. And it's great to have you leading off today. But before answering your question, I just want to say that we are grateful for your decades of thoughtful analysis within both water and industrial markets.

Speaker #6: I think all the way back to when Danaher acquired Hawk & Videojet, where I was when we had our investor conference out there. I think you were one of the first analysts that I met.

Speaker #6: So, we wish you all the best in your next chapter.

Deane Dray: Thank you, Jennifer. Look, it's been a great run, and I appreciate all the support and insight you and the team have provided me over the years. Thank you for those comments. I still have my questions. Thank you.

Speaker #5: Thank you, Jennifer. Look, it's been a great run, and I appreciate all the support and insight you and the team have provided me over the years.

Speaker #5: So, thank you for those comments, but I still have my questions. Thank you.

Jennifer Honeycutt: Yes. We're getting to your question right now. Obviously, we saw some sequential acceleration between Q1 and Q2. We feel really good about the momentum coming out of H1 and the durability of the growth drivers here in H2. I'll just cite two key drivers in each segment. I think in Water, our industrial market demand continues to be strong. This is really on the back of the data center demand and the associated ecosystem there, including power, mining, and semiconductor. Secondly, for Water, we've got ongoing scarcity, clearly exacerbated by climate change, which is propelling water recycling and reuse, giving us good opportunity to sell solutions into that space. For PQI, we continue to see strong demand for digital workflow solutions as CPG brands look to improve product compliance, traceability, and time to market.

Speaker #6: Yes, yes. We're getting to your question right now. So, you know, obviously, we saw some sequential acceleration between Q1 and Q2. We feel really good about the momentum coming out of the first half of the year.

Speaker #6: And the durability of the growth drivers here in the second half—I’ll just cite two key drivers in each segment. I think in Water, our industrial market demand continues to be strong.

Speaker #6: And this is really on the back of, you know, the data center demand and the associated ecosystem there, including power, mining, and semiconductor. Secondly, for water, we've got ongoing scarcity, clearly exacerbated by climate change, which is propelling water recycling and reuse, giving us good opportunity to sell solutions into that space.

Speaker #6: For PQI, we continue to see strong demand for digital workflow solutions, as CPG brands look to improve product compliance, traceability, and time-to-market. We also see ongoing, steady demand for our marketing and coding solutions, clearly supported as well by easier comps in the fourth quarter.

Jennifer Honeycutt: We see ongoing steady demand for our marking and coding solutions, clearly supported as well by easier comps in Q4. Based on where the funnels were at the end of Q2, we feel really good about the momentum and confident in the H2 guide for core sales growth.

Speaker #6: So, based on where the funnels were at the end of Q2, we feel really good about the momentum and confident in the second-half guide for core sales growth.

Sameer Ralhan: Maybe, Deane, I'll just add one more point. As you look at the H2 core growth of 5% to 6%, we expect it to be led by volume, with pricing moderating slightly but still be at or slightly above the high end of the range. This will be a volume story in H2.

Speaker #5: And maybe, Dean, I'll just add one more point. As you look at the second half, core growth of 5% to 6%, we expect it to be led by volume, with pricing moderating slightly but still at or slightly above the high end of the range.

Speaker #5: So, this will be a volume story in the second half of the year. Great to hear all of that. And then, just a second question on capital allocation.

Deane Dray: Great to hear all of that. Just a second question on capital allocation. It's been really nice to see the balanced approach here. You've been opportunistic on some bolt-on acquisitions and the buybacks coming through. Sameer, can you just give us a sense of how you're looking at these opportunities? What does the funnel look like? You've made some pretty obvious accretive deals here. What's that pipeline look like? In the meanwhile, can you do more buybacks? Thank you.

Speaker #5: It's been really nice to see the balanced approach here. I mean, you've been opportunistic on some bolt-on acquisitions and the buybacks coming through. Sameer, can you just give us a sense of how you're looking at these opportunities?

Speaker #5: What does the funnel look like? You've made some pretty obvious accretive deals here. What does that pipeline look like in the meantime? Can you do more buybacks?

Speaker #5: Thank you.

Sameer Ralhan: Thanks, Deane, for that question. As you kind of look at the capital allocation kind of a framework, Deane, there's really no change. Our first bias is, of course, towards M&A to create long-term value. We will be opportunistic on the buyback side. If the valuation stayed, there's a disconnect between the free cash flow generation of the company and the public market value, we will be out in the market from a share buyback perspective. Otherwise, from M&A side, the funnels are pretty good, Deane, on both sides of the house. We in active cultivations and pretty actively looking at things. As you know, M&A is episodic, we'll stay patient and disciplined.

Speaker #6: Thanks, Dean, for that question. Yeah, as you kind of look at the capital allocation kind of a framework, Dean, there's really no change. Our first bias is, of course, towards M&A to create long-term value.

Speaker #6: And we will be opportunistic on the, you know, the valuation state. There's a disconnect between the free cash flow generation of the company and the public market value. We will be out in the market.

Speaker #6: On the share buyback perspective. But otherwise, from the M&A side, the funnels are pretty good, Dean, on both sides of the house. So, we have active cultivations and are pretty actively looking at things.

Speaker #6: But, as you know, M&A is episodic. So we'll stay patient and disciplined.

Deane Dray: Great. Again, thank you for your kind words, and I wish you all continued success.

Speaker #5: Great. And again, thank you for your kind words, and I wish you all continued success.

Jennifer Honeycutt: Thank you, Deane.

Sameer Ralhan: Thanks, Deane.

Speaker #6: Thank you, Dean.

Speaker #5: Thanks, Dean.

Operator 2: Thank you. Our next question comes from Scott Davis with Melius Research. Please go ahead.

Operator: Thank you. Our next question comes from Scott Davis with Melius Research. Please go ahead.

Speaker #1: Thank you. Our next question comes from Scott Davis with Melius Research. Please go ahead.

Scott Davis: Hey, good morning, everybody. Jennifer, Sameer, Ryan.

Speaker #7: Hey, good morning, everybody. Jennifer, Sameer, Ryan.

Jennifer Honeycutt: Good morning, Scott.

Speaker #6: Good morning, Scott.

Scott Davis: I guess with Dean leaving, I'm going to have to actually learn what the water business is finally. I used to just call him if I needed help. Maybe he'll be kind enough to give me his home number, and I'll just call him in future quarters. Anyways, he will be missed by us as well. He was a great colleague and friend. Anyways, guys, getting back to business. You talked a little bit about the opportunity around data center, power gen, semi fabs. I think you threw mining in there, too. Is there any way you can kind of size that if you combine those or even help us understand anything about really how we can think about the TAM in those business or opportunities or how big of a potential tailwind that may be to your top line in industrial water treatment?

Speaker #7: I guess with Dean leaving, I'm going to have to actually learn what the water business is—finally. I used to just call him if I needed help.

Speaker #7: So maybe he'll be kind enough to give me his home number, and I'll just call him in future quarters. So, anyways, he will be missed by us as well.

Speaker #7: He was a great colleague and friend. But anyway, guys, getting back to business—the, you talked a little bit about the opportunity around data center power gen and semi-fabs.

Speaker #7: I think it's for mining in there too. Is there any way you can kind of size that if you combine those or even help us understand the, you know, the anything about really how that how we can think about the TAM and those business opportunities or how big of a potential tailwind that may be to your top line in industrial water treatment?

Sameer Ralhan: Hey, Scott. As you kind of look at overall, the demand that then the revenue that we're getting from the data centers and the associated ecosystem, it's still a small number on the high-tech side, but overall, from a ChemTreat perspective, it's becoming pretty interesting as we kind of move forward. At a Veralto level, it's still a small number at this point, so we're not public with that number yet.

Speaker #6: Hey Scott, as you're going to look at overall, you know, the demand and the revenue that we're getting from the data centers and the associated ecosystem—it's still a small number on the high-tech side.

Speaker #6: But overall, it's, you know, from a Kempre perspective, it's becoming pretty interesting as we're going to move forward. But at an overall level, it's still a little small number at this point.

Speaker #6: So we're not public with that number yet. I mean, you could think of, you know, Kempre Solutions in there to be, you know, strong double-digit growth, right?

Jennifer Honeycutt: You could think of ChemTreat's solutions in there to be strong double-digit growth. Right? That team has been firing on all cylinders. It is still a smaller part of our overall business, but continues to be a really good grower, along with some other sort of industrial reshoring and nearshoring activities. We're seeing lift kind of across the board.

Speaker #6: That team has been firing on all cylinders. It is still a small, smaller part of our overall business, but continues to be a really, really good grower.

Speaker #6: Along with some other sorts of industrial reshoring and near-shoring activities. So we're seeing lift kind of across the board.

Scott Davis: Okay. Fair enough. You guys in past quarters kind of talked about this cost-out plan. Given kind of the recovery you're seeing in some of your markets, maybe you can update us on what you're planning on doing there and the timing and such.

Speaker #7: Okay, fair enough. And then, you guys in past quarters have kind of talked about this cost-out plan. Given the recovery you're seeing in some of your markets, maybe you can update us on what you're planning on doing there, and the timing and such?

Sameer Ralhan: Yeah, the program is on track, Scott. We are well on our way. We have started executing some things. Impact, as far as the savings are concerned in this year, we're going to see a very small lift, maybe in Q4. That's baked into the guide. It's a very small number. We're talking a few millions at this point. The biggest benefit we'll see is in 2027. Overall, there's no change, as far as if you're referring to any lift in the business and is that impacting the cost optimization program, absolutely not. We're fully committed and progressing well.

Speaker #6: Yeah, the program is on track, Scott, so we are well on our way, and we've started executing some things. Impact, as far as the savings are concerned this year—we're going to see a very small lift, maybe in Q4.

Speaker #6: That's baked into the guide. It's a very small number—we're talking a few million at this point. The biggest benefit we'll see is in '27.

Speaker #6: But overall, there's no change as far as if you're referring to any lift in the business, and is that impacting the cost optimization program?

Speaker #6: Absolutely not. We are fully committed and progressing well.

Scott Davis: Okay. Best of luck. I appreciate it.

Speaker #7: Okay, best of luck. I appreciate it.

Sameer Ralhan: Thanks.

Jennifer Honeycutt: Thanks, Scott.

Speaker #6: Thanks. Thanks, Scott.

Operator 2: Thank you. We will move next with Jeff Sprague with Vertical Research. Please go ahead.

Operator: Thank you. We will move next with Jeff Sprague with Vertical Research. Please go ahead.

Speaker #1: Thank you. We will move next to Jeff Sprigg with Vertical Research. Please go ahead.

Jeff Sprague: Hey, thanks. Good morning, everyone. Maybe just two quick ones from me. First on the volume pickup that you expect in the back half, do you see that being led by equipment or consumables? Can you maybe unpack that a little bit?

Speaker #8: Hey, thanks. Good morning, everyone. Maybe just two quick ones from me. First, on the volume pickup that you expect in the back half, do you see that being led by equipment or consumables?

Speaker #8: Can you maybe unpack that a little bit?

Sameer Ralhan: It's a combination of both, Jeff. On the water side, it's going to be pretty balanced across both sides. PQI side is pretty interesting. If you look at the PQI side, really there are three building blocks. The first one is going to be driven by the digital workflow solutions. Over there, as you know, we book and it's based on the ACVs of the contracts that we have been booking. We have pretty good solid visibility into the H2 recovery in the digital workflow solutions. Marking and coding continues to be very strong. The year-over-year comp is going to look very good as you're going to look at the Q4 impact last year. On the color validation and certification instrumentation side, we started seeing the funnels improving and the velocity improving over there as well.

Speaker #6: It's a combination of both. Jeff, on the Water side, it's going to be pretty balanced across both sides. But the PQI side is pretty interesting.

Speaker #6: If you look at the PQI side, really, there are three building blocks. The first one is going to be driven by the digital workflow solutions over there.

Speaker #6: As you know, we book and, you know, based on the ACVs of the contracts that we've been booking, we have pretty good, solid visibility into the second half recovery in the digital workflow solutions.

Speaker #6: Marking and coding continue to be very strong, so the year-over-year comp is going to look very good as you look at, you know, the Q4 impact last year.

Speaker #6: And then, on the color validation and certification instrumentation side, we started seeing the funnels improving and the velocity improving over there as well. So we should start seeing an uplift in the second half of the year.

Sameer Ralhan: We should start seeing an uplift in the H2 of the year. When you look at both on the PQI side and the water quality side, it's pretty broad-based. It's not tied to any product line.

Speaker #6: So when you look at both on the PQI side and the water quality side, it's pretty broad-based. It's not tied to any one product line.

Jeff Sprague: When you look at your price capture, which actually is very solid, in my opinion, for a business that's not metals intensive, and I don't think had a lot of tariff-related pressure. Is that primarily reflective of price capture in consumables, or how are you doing on the equipment side in terms of getting some incremental price?

Speaker #8: And then, when you look at your price capture, you know, actually, it is very solid, in my opinion, for a business that's not metals-intensive. And I don't think it had a lot of sort of tariff-related pressure.

Speaker #8: Is that, you know, primarily reflective of price capture in consumables? Or how are you doing on the equipment side in terms of getting some incremental price?

Jennifer Honeycutt: Yeah. Our philosophy is every product has to earn the right to be in the portfolio. We take a balanced approach, and we've been surgical about where and how, and how much we increase price. Obviously, we look to cover inflationary impact of tariffs, et cetera. You see balanced price read-through on both consumables and equipment. It's a little bit higher on consumables, given the captive nature of those products.

Speaker #6: Yeah. I mean, our philosophy is, you know, every product has to earn the right to be in the portfolio. So we take a balanced approach.

Speaker #6: And we've been very surgical about where, how, and by how much we increase prices. Obviously, we look to cover the impact of inflation, tariffs, etc.

Speaker #6: But you see balanced price read-through on both consumables and equipment. It's a little bit higher on consumables, given the captive nature of those products.

Jeff Sprague: Right. Great. Thank you.

Speaker #8: Right. Great. Thank you.

Sameer Ralhan: Thanks, Jeff.

Speaker #6: Thanks, Jeff.

Operator 2: Thank you. Our next question comes from Michael Halloran with Baird. Please go ahead. Your line is open.

Operator: Thank you. Our next question comes from Michael Halloran with Baird. Please go ahead. Your line is open.

Speaker #1: Thank you. Our next question comes from Mike Halloran with Baird. Please go ahead. You are already open.

Michael Halloran: Hi. Morning, everyone.

Mike Halloran: Hi. Morning, everyone.

Speaker #9: Hi. Morning, everyone.

Jennifer Honeycutt: Morning, Mike.

Michael Halloran: Great, thanks. A couple here. Just can we talk a little bit about back half margin progression, what the assumptions are, and any help you can give by segment and how that tracks through the quarters?

Mike Halloran: Great, thanks. A couple here. Just can we talk a little bit about back half margin progression, what the assumptions are, and any help you can give by segment and how that tracks through the quarters?

Speaker #10: Morning, Mike.

Speaker #8: So, we think a couple here. So, can we talk a little bit about back-half margin progression—what the assumptions are, and any help you can give by segment, and how that tracks to the quarters?

Sameer Ralhan: Mike, as you're going to look at the margin side, we'll see a sequential improvement on the margin, right? As in the guidance we kind of laid that out, that we should expect roughly 25 basis points of margin expansion into Q3. For the full year, it's going to be 25 to 50. Q4, we're going to see a nice margin uplift, especially in the PQI side because that's where we saw some of the impact from the fixed cost absorption side and the line moves of duplicate production lines that we had on the marking and coding side. Think about margin expansions to roughly 25 basis points in Q3, and for the full year, 25 to 50 basis points of Q4 will be north of 50 as you can think.

Speaker #9: Yeah, Mike. As we're going to look at the margin side, we will see a sequential improvement on the margin, right? In the guidance, we're going to lay that out.

Speaker #9: But we should expect roughly 25 basis points of margin expansion in Q3. And for the full year, it's going to be 25 to 50 basis points.

Speaker #9: So, Q4, we're going to see a nice margin uplift, especially on the PQI side, because that's where we saw some of the impact from the fixed cost absorption side, the line moves, and the duplicate product lines that we had when marking and coding.

Speaker #9: So think about margin expansions—roughly 25 bps in Q3. And for the full year, 25 to 50 basis points; Q4 will be, you know, north of 50, as you can think.

Michael Halloran: Any nuance by segment there?

Mike Halloran: Any nuance by segment there?

Speaker #8: Any nuance by segment there?

Sameer Ralhan: Q4 will be largely led by PQI, but on the water side, it is going to be steady from what we have seen so far.

Speaker #9: Q4 will be largely led by PQI, but on the water side, it's going to be steady—based on what we have seen so far.

Speaker #8: Got it. Thank you. And then, just on the PQI side of things—could you talk about what you're seeing on the equipment side, and that headwind debated on the packaging and color side going into the back half of the year?

Michael Halloran: Thank you. Just on the PQI side of things, talk about what you are seeing on the equipment side and that headwind abating on the packaging and color side into the back half of the year, and maybe touch on what you are seeing on the workflow solutions that gives you the confidence in the acceleration and the frankly, secular opportunity you are seeing on that side.

Mike Halloran: Thank you. Just on the PQI side of things, talk about what you are seeing on the equipment side and that headwind abating on the packaging and color side into the back half of the year, and maybe touch on what you are seeing on the workflow solutions that gives you the confidence in the acceleration and the frankly, secular opportunity you are seeing on that side.

Speaker #8: And maybe touch on what you're seeing on the workflow solutions that gives you the confidence, the acceleration, and, frankly, the secular opportunity you're seeing on that side.

Jennifer Honeycutt: Yeah. We have got a decent ramp in PQI here in H2. It is really driven by three things. The first is we are seeing strong demand in bookings of our digital workflow solutions with the integration of Esko, TraceGains, and now GlobalVision. We also see steady demand in marking and coding that is bolstered by an easier comp in Q4. We do see recovery in our packaging and color equipment. We exited Q2 with better funnels and stronger service growth, so we have got good confidence in kind of the H2 acceleration of core growth there. We also have a number of new product launches that have come to market here for PQI as a function of our increased investment at the time of spend. Flywheel of innovation is accelerating. We have got a number of good innovations coming to market.

Speaker #6: Yeah, so we've got a decent ramp in PQI here in the second half. It's really driven by three things. The first is we're seeing strong demand and bookings of our digital workflow solutions with the integration of ESCO, TraceGains, and now Global Vision.

Speaker #6: We also see steady demand in marking and coding that's bolstered by an easier comp in Q4. And we do see recovery in our packaging and color equipment.

Speaker #6: We exited Q2 with better funnels and stronger service growth, so we've got good confidence in the second half acceleration of core growth there.

Speaker #6: We also have a number of new product launches that have come to market here for PQI as a function of our increased investment at the time of spend.

Speaker #6: The flywheel of innovation is accelerating. We've got a number of good innovations coming to market.

Michael Halloran: Thank you. Appreciate it.

Mike Halloran: Thank you. Appreciate it.

Speaker #8: Thank you. Appreciate it.

Jennifer Honeycutt: Thanks, Mike.

Speaker #6: Thanks, Mike.

Operator 2: Thank you. Our next question comes from John McNulty with BMO Capital Markets. Please go ahead.

Operator: Thank you. Our next question comes from John McNulty with BMO Capital Markets. Please go ahead.

Speaker #1: Thank you. Our next question comes from John McNulty with BMO Capital Markets. Please go ahead.

John McNulty: Yeah, good morning. Thanks for taking my question. Maybe just a quick one on the pricing side. I think Sameer, you'd said H2, you're not assuming much in terms of further price acceleration. I guess, is that a function of the comps are a bit tougher, or is that a function of you just don't see the need for it at this point, just given that costs may have stabilized? I guess, how should we be thinking about pricing as we kind of progress through the rest of the year?

Speaker #9: Yeah, good morning. Thanks for taking my question. Maybe just a quick one on the pricing side. I think Sameer, you'd said back half, you're not assuming much in terms of further price acceleration.

Speaker #9: I guess, is that a function of the comps being a bit tougher? Or is that a function of you just not seeing the need for it at this point, just given the cost may have stabilized?

Speaker #9: I guess, how should we be thinking about pricing as we progress through the rest of the year? Yeah, thanks. Thanks, John, for that question.

Sameer Ralhan: Yeah. Thanks, John, for that question. First of all, I think on the pricing, we expect it pretty strong, right? Even in the H2, we should expect the pricing to be slightly above the high end of the range. Overall, from an absolute basis, we still expect it to be pretty good. As for the moderation point that I said earlier from a Q2 to Q3 and Q4, really, John, that is a comp. It's a lapping up. As you know, we introduced price increases last year when the tariffs started happening, and then we had our regular annual price increases in as well. In the H1 of the year, we have seen impact of both. As we're going to get into Q3, we'll get back to our sort of normal price increases.

Speaker #9: First of all, I think on the pricing, we expect it to be pretty strong, right? You know, even in the second half, we should expect the pricing to be slightly above the high end of the range.

Speaker #9: So overall, from an absolute basis, you know, we're still expected to be pretty good. As far as the moderation point that I said earlier, from Q2 to Q3 and Q4, really, John, that is a comp.

Speaker #9: It's a lapping up. As you know, we introduced price increases last year when the tariffs started happening, and then we had our regular annual price increases in as well.

Speaker #9: So in the first half of the year, we've seen the impact of both. And as we get into Q3, we'll get back to our normal price increases.

John McNulty: Got it. Okay. Fair enough. Maybe just to dig a little bit deeper into the data center opportunities and how you're targeting that. I know, we saw earlier, I guess, in Q2, there was a new partnership with Dow and some of their chemical solutions for the data center opportunities. I guess, should we be expecting further types of partnerships, and how are you looking to grow out that business? What are the avenues that you can take? Also, I guess, can you speak to potential M&A opportunities that you might see that help further target that market for you? Thanks.

Speaker #9: Got it. Okay, fair enough. And then, maybe just to dig a little bit deeper into the data center opportunities and how you're targeting that.

Speaker #9: I know we saw earlier, I guess in the second quarter, there was a new partnership with Dow and some of their chemical solutions for the data center opportunities.

Speaker #9: I guess, should we be expecting further types of partnerships? And how are you looking to grow out that business? What are the avenues that you can take?

Speaker #9: And also, I guess, can you speak to potential M&A opportunities that you might see that help further target that market for you? Thanks.

Jennifer Honeycutt: Great question, John. We've continued to engage in partnerships across the enterprise. We're excited about our partnership with Dow to help serve liquid cooling applications and data centers. This is normal course of business for us as we look to extend our value into these high growth areas. Relative to other applications and so on, look, we can't talk about anything specifically that's in the funnel. We like how we're positioned here, and as far as M&A and partnerships are concerned, we're going to look to our power alley of serving the operating environment of the customer's workflow, where there's a good sticky razor blade kind of relationship. We are the right custodian to deliver the kind of value that those customers want. I think we're well positioned here. We're looking at lots of things.

Speaker #6: Yeah, great question, John. We've continued to engage in partnerships across the enterprise. We're excited about our partnership with Dow to help serve liquid cooling applications in data centers.

Speaker #6: But this is a normal course of business for us as we look to extend our value into these high-growth areas. You know, relative to other applications and so on—look, we can't talk about anything specifically that's in the funnel.

Speaker #6: But we like how we're positioned here and as far as, you know, M&A and partnerships are concerned, you know, we're going to look to our power alley of serving the operating environment of the customers' workflow where there's a good sticky razor razor blade kind of relationship.

Jennifer Honeycutt: We are the right custodian to deliver the kind of value that those customers want. I think we're well positioned here. We're looking at lots of things. You'll know when we know as far as any assets that come into the portfolio as a function of that.

Speaker #6: And, you know, we are the right custodian to deliver the kind of value that those customers want. So, I think we're well positioned here.

Speaker #6: We're looking at lots of things. And, you know, you'll know when we know as far as any assets that come into the portfolio as a function of that.

Jennifer Honeycutt: You'll know when we know as far as any assets that come into the portfolio as a function of that.

John McNulty: Got it. Thanks very much for the color.

Speaker #9: Got it. Thanks very much for the question. Thanks, John.

Sameer Ralhan: Thanks, John.

Jennifer Honeycutt: You bet.

Speaker #6: You bet.

Operator 2: Thank you. We will move next with Nathan Jones with Stifel. Please go ahead.

Operator: Thank you. We will move next with Nathan Jones with Stifel. Please go ahead.

Speaker #1: Thank you. We will move next to Nathan Jones with Stifel. Please go ahead.

Nathan Jones: Morning, everyone.

Speaker #10: Good morning, everyone.

Jennifer Honeycutt: Good morning, Nathan.

Speaker #11: Good morning, Nathan.

Nathan Jones: I guess I'll start in the packaging and color side of the business. You talked about Esko, TraceGains, and GlobalVision, and the impact that they're having together. Can you maybe talk a little bit about how you're leveraging each one in order to generate better sales, and how that factors into the outlook in H2? Then you mentioned in your scripts environmental monitoring workflows, which I think plays into In Situ and OTT, and maybe how they fit together to drive additional sales as well. Maybe just sales synergies around the acquisitions, I guess, is the short way to ask it.

Speaker #10: I guess I'll start on the packaging and color side of the business. You talked about ESCO, TraceGains, and Global, and the impact that they're having together.

Speaker #10: Can you maybe talk a little bit about how you're leveraging each one in order to generate better sales, and how that factors into the outlook for the second half?

Speaker #10: And then you mentioned in your scripts environmental monitoring workflows, which I think plays into in situ and OTT, and maybe how they fit together to drive additional sales as well.

Speaker #10: So, maybe just sales synergies around the acquisitions, I guess, is the short way to ask it.

Jennifer Honeycutt: Yeah. Obviously, we continue to stitch together assets here that deliver more value to the consumer product goods digital workflow. Everything from sort of package design integrity through compliance, regulatory compliance, ingredient traceability, checking for accuracy of the print that's actually rendered on the package. All of those things are critical workflows for brand owners. To the extent that they can be seamlessly integrated, is where the real value is derived. In fact, at our most recent trade show, Esko World was able to demonstrate packaging design changes that normally span months into weeks and in some cases, down to a few days. There's real value in that workflow just in terms of stitching those things together. Bear in mind that GlobalVision has been a longstanding partner of Esko, and so the integration of those solutions is pretty straightforward.

Speaker #6: Yeah. So, you know, obviously, we continue to stitch together assets here that deliver more value to the consumer products goods digital workflow. And, you know, everything from sort of package design integrity, through compliance, regulatory compliance, ingredient traceability, checking for accuracy of the print that's actually rendered on the package— you know, all of those things are critical workflows for brand owners.

Speaker #6: And to the extent that they can be seamlessly integrated is where the real volume, or the real value, is derived. In fact, at our most recent trade show, ESCO World, we were able to demonstrate packaging design changes that normally span months, into weeks, and in some cases down to a few days.

Speaker #6: So there's real value in that workflow, just in terms of stitching those things together. Bear in mind that GlobalVision has been a longstanding partner of ESCO.

Speaker #6: And so the integration of those solutions is pretty straightforward. But TraceGains is also providing real value to this workflow in terms of ingredient traceability, regulatory changes, and making sure that products are fit for purpose and meet all the regulatory affairs and compliance requirements.

Jennifer Honeycutt: TraceGains is also providing real value to this workflow in terms of ingredient traceability, regulatory changes, and making sure that products are fit for purpose and meet all the regulatory affairs and compliance requirements. Yes, we are seeing good value there. We see good brand uptake of those solutions, and we see that accelerating here in H2. Relative to your question, in the environmental workflows, yes, we are speaking to the combination of In Situ and our OTT products. As we had mentioned previously, the two of those really fit together like Legos. One is strong in analytical quantity. One is strong in analytical quality. Quantity and quality are both covered in those environmental workflows, and they provide important intelligence here. The integrity of water as it comes into the influence into water treatment plants.

Speaker #6: So yes, we are seeing good value there. We see good brand uptake of those solutions, and we see that accelerating here in the back half of the year.

Speaker #6: Relative to your question in the environmental workflows, yes, we are speaking to the combination of in situ and our OTT products, and as we had mentioned previously, the two of those really fit together like Legos.

Speaker #6: One is strong in analytical quantity. One is strong in analytical quality. So quantity and quality are both covered in those environmental workflows, and they provide important intelligence here for the integrity of water as it comes into the influent into water treatment plants.

Jennifer Honeycutt: Knowing what is coming, how much is coming, whether it's clean or dirty, are all critical factors, particularly as you get more environmental aberrations, severe weather events, and so on. Integration is progressing well there and we're liking what we're seeing.

Speaker #6: So, knowing what is coming, how much is coming, and whether it's clean or dirty are all critical factors, particularly as you get more environmental aberration, severe weather events, and so on.

Speaker #6: So integration is progressing well there, and we're liking what we're seeing.

Sameer Ralhan: Really just one thing on the environmental side, Nathan, I'll add is, as you're going to look at the synergy numbers that we kind of talked about on the commercial side when we announced the deal. The team is early days, but the team is executing phenomenally well, and we are well ahead on the commercial synergy side, numbers-wise.

Speaker #9: And maybe just one thing on the environmental side, Nathan, I'll add is, as you're going to look at the synergy numbers, if you're going to talk about on the commercial side, when we announced the deal, the team—it’s early days, but the team is executing phenomenally well.

Speaker #9: And we are well ahead on the commercial synergy side, numbers-wise. Thanks for that. Excuse me, thanks for that. I guess the follow-up question—just a housekeeping one, I guess—around margins.

Nathan Jones: Thanks for that. Excuse me. Thanks for that. I guess the follow-up question, just a housekeeping one, I guess, around margins. You had the IEEPA tariff refunds in each segment. Can you talk about what the margin expansion was ex the IEEPA refunds? I think the guidance and it contains no more IEEPA refunds in it. Any chances that there will be more coming ahead? Thanks.

Speaker #9: You had the IEPA tariff refunds in each segment. Can you talk about what the margin expansion was, excluding the IEPA refunds? And I think the guidance contains no more IEPA refunds in it.

Speaker #9: Any chances that there will be more coming ahead? Thanks. Yeah, thanks, Nathan, for that question. As you look at the refund side, effectively, we got roughly 16 million—10-ish rows in PQI, 6 million in water quality.

Sameer Ralhan: Yeah. Thanks, Nathan, for that question. As you look at the refund side, effectively, we got roughly $16 million, 10-ish was in PQI, $6 million in water quality. Overall impact of the tariff refunds on the margin expansion on the adjusted OP was 110 basis points. Excluding that, the margin effectively came in pretty much in line with the guidance, Nathan, overall as a company and for each segment as well. Really no surprises on the margin side. As far as the future goes in the H2 of the year, you're actually right, we have not included any further benefit from tariff refunds in the H2. Based on the filings that we have done, look, we can have another $0.02 per share kind of an impact benefit.

Speaker #9: The overall impact of the tariff refunds on the margin expansion, on the adjusted OP, was 110 basis points. So excluding that, the margin effectively came in pretty much in line with the guidance, Nathan—overall as a company and for each segment as well.

Speaker #9: So, really no surprises on the margin side. And as far as the future goes in the second half of the year, you're absolutely right.

Speaker #9: We have not included any further benefit from tariff refunds in the second half. But based on the filings that we have done, look, we can have another $0.02 per share kind of impact benefit.

Sameer Ralhan: The timing is highly uncertain, we've not added that to our guidance for H2.

Speaker #9: But the timing is highly uncertain, so we have not added that to our guidance for the second half. Thanks for taking the questions. Thanks, Nathan.

Nathan Jones: Thanks for taking the questions.

Sameer Ralhan: Thanks, Nathan.

Operator 2: Thank you. We will move next with Andrew Kaplowitz with Citigroup. Please go ahead.

Operator: Thank you. We will move next with Andrew Kaplowitz with Citigroup. Please go ahead.

Speaker #1: Thank you. We will move next to Andy Kaplowitz with Citigroup. Please go ahead.

Andrew Kaplowitz: Good morning, everyone.

Andy Kaplowitz: Good morning, everyone.

Speaker #5: Good morning, everyone.

Jennifer Honeycutt: Good morning, Andy.

Speaker #6: Good morning, Andy.

Andrew Kaplowitz: Jennifer, can you give us a little more color on how to think about the mix of water quality moving forward? For instance, how big is your overall industrial exposure at this point? Is it getting as large as your municipal exposure? It looks like you're saying that industrial end markets are growing at least in the high single digits. It seems like it's more broad-based growth outside of data centers. Can you tell me about the durability of that growth moving forward?

Andy Kaplowitz: Jennifer, can you give us a little more color on how to think about the mix of water quality moving forward? For instance, how big is your overall industrial exposure at this point? Is it getting as large as your municipal exposure? It looks like you're saying that industrial end markets are growing at least in the high single digits. It seems like it's more broad-based growth outside of data centers. Can you tell me about the durability of that growth moving forward?

Speaker #5: Jennifer, can you give us a little more color on how to think about the mix of Water Quality moving forward? For instance, how big is your overall industrial exposure at this point?

Speaker #5: Is it getting as large as your municipal exposure? And it looks like you're saying that industrial markets are growing at least in the high single digits.

Speaker #5: It seems like it's more broad-based growth outside of data centers. So, can you talk about the durability of that growth moving forward?

Jennifer Honeycutt: Yeah. We're really pleased with our industrial growth. If you look at our overall water business, about 50% of our water revenue comes from industrial applications. It's really quite significant. Most of that industrial revenue comes from North America. We're really seeing the benefits not only of these discrete vertical markets like data centers and the feeder industries there, but also in the nearshoring and the reshoring efforts. We see growth being catalyzed here by strength in those industrial markets. That said, we've got plenty of analytical instrumentation and products and services that go into that space. The municipal markets are also holding up well. Right? As a reminder, 60% of our revenue is recurring revenue.

Speaker #6: Yeah, we're really pleased with our industrial growth. And if you look at our overall water business, about 50% of our water revenue comes from industrial applications.

Speaker #6: So, it's really quite significant. Most of that industrial revenue comes from North America, and so we're really seeing the benefits not only of these discrete vertical markets like data centers and the feeder industries there, but also in the nearshoring and the reshoring efforts.

Speaker #6: So we see growth being catalyzed here by strength in those industrial markets. That said, we've got plenty of analytical instrumentation, products, and services that go into that space.

Speaker #6: But the municipal markets are also holding up well. Right? As a reminder, 60% of our revenue is recurring revenue. We sit in the operating side of the customer's plant, where they're looking to make sure that they insulate themselves from any points of failure along their along their value chain there.

Jennifer Honeycutt: Being integral to the operating environment, making sure that we help customers avoid critical points of failure allows us to continue to see really sticky business there on the municipal side. The other 40% really is revenue associated with continuing to upgrade equipment and deploy new technologies and so on. I think it's really balanced across the portfolio. Certainly, there's a higher driver of growth coming from our industrial markets, but muni's holding up really well as well.

Speaker #6: So, being integral to the operating environment—making sure that we help customers avoid critical points of failure—allows us to continue to see really sticky business there on the municipal side.

Speaker #6: And the other 40% really is revenue associated with continuing to upgrade equipment and deploy new technologies and so on. So I think it's really balanced across the portfolio.

Speaker #6: Certainly, there's a higher driver of growth coming from our industrial markets. But Munie's holding up really well as well.

Andrew Kaplowitz: Jennifer, maybe I could double-click on the muni markets because obviously we get, and I'm sure you get asked the question a lot. I think you've called it steady. You reminded us of the recurring growth. Can you continue to grow in that business, you think, over the next several quarters, years? I do hear municipalities worried about tight budgets. Can you do that? Can you continue to grow in a more tight budgeting environment?

Andy Kaplowitz: Jennifer, maybe I could double-click on the muni markets because obviously we get, and I'm sure you get asked the question a lot. I think you've called it steady. You reminded us of the recurring growth. Can you continue to grow in that business, you think, over the next several quarters, years? I do hear municipalities worried about tight budgets. Can you do that? Can you continue to grow in a more tight budgeting environment?

Speaker #5: Jennifer, maybe I could double-click on the Muni markets because obviously, we get—and I'm sure you get—asked the question a lot. I think you've called it steady.

Speaker #5: You reminded us of the recurring growth. Can you continue to grow in that business, you think, over the next several quarters, years? I do hear municipalities worried about tight budgets.

Speaker #5: Can you do that? Can you continue to grow in a tighter budgeting environment?

Jennifer Honeycutt: Yeah. The way to think about this is the budgets for operating a water plant are not elective. Right? Water plants have to continue to operate, treat their water, because communities and industry is relying on that water. We don't see real aberrations or fluctuations in federal funding. Obviously, utilities, municipalities are going to be judicious with their spend, but we absolutely believe that we can continue to grow, and grow at mid-single digits or better in this space. Bear in mind with new technologies, more efficient ways of running plants, more software deployed to get intelligence out of how well that system is running. Those are all opportunities for continued growth.

Speaker #6: Yeah. I mean, the way to think about this is the budgets for operating a water plant are not elective, right? Water plants have to continue to operate and treat their water, because communities and industry are relying on that water.

Speaker #6: So we don't see real aberrations or fluctuations in federal funding. Obviously, utilities municipalities are going to be judicious with their spend. But we absolutely believe that we can continue to grow and grow at mid-single digits or better in this space.

Speaker #6: Bear in mind, with new technologies, more efficient ways of running plants, more software deployed to get intelligence out of how well that system is running, those are all opportunities for continued growth.

Sameer Ralhan: Yeah. Andy, as you're going to think about our muni business, right? Definitely on the analytics side is where you see the consumable side. Let's not forget, on the Trojan side, we have pretty nice exposure on the muni through our Trojan business. The bid activity that you see in the wastewater side, especially with the munis, is pretty solid. Overall demand, as you're going to think about the growth of our muni business, you should look at both angles, both from one from the analytics side, from the Hach side, at the same time from a Trojan business as well, which has been growing pretty nicely.

Speaker #9: Yeah. And Andy, as you're going to think about our Munie business, right, definitely on the analytics side is where you see the consumable side.

Speaker #9: But let's not forget, on the Trojan side, we have pretty nice exposure on the munis through our Trojan business. And the bid activity that you see on the wastewater side, especially with the munis, is pretty solid.

Speaker #9: So overall demand, as you think about the growth of our Munie business, you should look at both angles: one from the analytics side, from an HAQ side, and at the same time from the Trojan business as well, which has been growing pretty nicely.

Andrew Kaplowitz: Appreciate all the color, guys.

Andy Kaplowitz: Appreciate all the color, guys.

Speaker #5: Appreciate all the color guess.

Sameer Ralhan: Thank you. Thanks, Andy.

Speaker #9: Thank you. Thanks, Andy.

Operator 2: Thank you. We will move next with Ryan Connors with Northcoast Research. Please go ahead.

Operator: Thank you. We will move next with Ryan Connors with Northcoast Research. Please go ahead.

Speaker #1: Thank you. We will move next to Ryan Connors with North Coast Research. Please go ahead.

Ryan Connors: Great. Thanks for taking my question. Wanted to talk about ChemTreat a little bit. You've talked about pricing various points in the call. It looked like we were going to get some relief there in terms of input cost headwinds. Oil prices had come down. Seems like that volatility has picked back up. Can you just talk in more detail about the specific price cost dynamics in ChemTreat? I know you mentioned the team's firing on all cylinders from a top-line perspective. Can you talk about price cost and margins with the volatile raw materials here in ChemTreat?

Speaker #8: Great, thanks for taking my question. I wanted to talk about ChemTreat a little bit. You’ve talked about pricing at various points in the call, but it looked like we were going to get some relief there in terms of input cost headwinds, as oil prices had come down.

Speaker #8: Seems like that volatility has picked back up. Can you just talk in more detail about the specific price-cost dynamics in chemtreat? I know you mentioned the team's firing on all cylinders from a top-line perspective, but can you talk about price cost and margins with the volatile raw materials here in chemtreat?

Sameer Ralhan: Ryan, as you kind of think about the ChemTreat side, you're absolutely right. Look, in ChemTreat, we've been working very closely with our customers, given some of the chemical inputs, to see how we kind of make sure we can preserve the margins and get the right value for the solution that we deliver to the customers. Overall, as you kind of think about in that business, that dynamic, yes, some of the pass-through can move with the pricing, but at this point, frankly, we have not seen any sort of a change as yet. Our goal is to make sure when the input side is so volatile, we are preserving the dollar margin. That's one of the biggest focus for us as we kind of think about. The discussions with customers that the ChemTreat is having is pretty real time.

Speaker #9: Yeah, Ryan. As you're going to think about the chemtreat side, you're absolutely right. Look, in the chemtreat, we've been working very closely with our customers given some of the chemical inputs to see how we kind of make sure we can preserve the margins and get the right value for the solution that we deliver to the customers.

Speaker #9: Overall, as you think about that business and that dynamic, yes, some of the pass-through can move with the pricing. But at this point, frankly, we have not seen any sort of change as yet.

Speaker #9: Our goal is to make sure, when the input side is so volatile, we are preserving the dollar margin. So that's one of the biggest focuses for us as we think about this.

Speaker #9: And the discussions with customers at Chemtreat he's having are pretty real-time. I mean, we have got phenomenal digital solutions to make sure our sales teams are fully armed to have those discussions.

Sameer Ralhan: I mean, we have got a phenomenal digital solutions to make sure our sales teams are fully armed to have those discussions.

Ryan Connors: Got it. Thank you. One more on the PQI side, just curious whether, we've had this really high-profile recall situation with the Cyclospora infections with the lettuce outbreak. Just curious whether for your teams there, whether that type of situation creates an uptick in kind of interest and selling opportunity. When something like that is front page news like that, whether that's kind of an opportunity for a bit of an uptick in interest and opportunity.

Speaker #8: Got it. Thank you. And then one more on the PQI side. Just curious whether we've had this really high-profile recall situation with the Cyclospora infections with the lettuce.

Speaker #8: Outbreak. Just curious whether, for your teams there, whether that type of situation creates an uptick in interest and selling opportunities for people to get in when something like that is front-page news. Whether that's kind of an opportunity for a bit of an uptick in interest and opportunity.

Jennifer Honeycutt: Yeah. Great question. The answer is absolutely. While Cyclospora is the latest public health risk, any kind of bacterial or parasitic outbreak is not actually uncommon. You can go back to E. coli in peanut butter, botulism in infant formula, right? These kinds of episodes happen. Our PQI franchise is ideally positioned with Esko, TraceGains, and GlobalVision providing integrated workflows to help with regulatory compliance, ingredient traceability, and packaging accuracy, while our coding and marking businesses aid in the date, lot code, and distribution traceability. It's an end-to-end solution, really, for brand owners to ensure that they have product that is safe for public consumption. Together, our portfolio of solutions really provides that source-to-shelf intelligence to make sure that brand owners can protect public health.

Speaker #6: Yeah, great question. The answer is absolutely. And while Cyclospora is the latest public health risk, any kind of bacterial or parasitic outbreak is not actually uncommon.

Speaker #6: You can go back to E. coli and peanut butter, botulism in infant formula, right? These kinds of episodes happen. And our PQI franchise is ideally positioned with ESCO, Trace Gains, and Global Vision providing integrated workflows to help with regulatory compliance, ingredient traceability, and packaging accuracy.

Speaker #6: While our coding and marking businesses aid in the date, lot code, and distribution traceability. So it's an end-to-end solution really for brand owners to ensure that they have product that is safe for public consumption.

Speaker #6: So, together, our portfolio of solutions really provides that source-to-shelf intelligence to make sure that brand owners can protect public health.

Ryan Connors: Understood. Thanks for your time.

Speaker #8: Understood. Thanks for your time.

Sameer Ralhan: Thanks, Ryan.

Speaker #9: Thanks, Ryan.

Speaker #6: Thank you.

Jennifer Honeycutt: Thank you.

Operator 2: Thank you. Our next question comes from Andrew Krill with Deutsche Bank. Please go ahead.

Operator: Thank you. Our next question comes from Andrew Krill with Deutsche Bank. Please go ahead.

Speaker #1: Thank you. Our next question comes from Andrew Creel with Deutsche Bank. Please go ahead.

Andrew Krill: Hi. Thanks. Morning, everyone. Could you give us an update on what you're seeing on electronics inflation, including memory with all of the demand on those products from data centers? Is there anything very unusual from a cost perspective or availability perspective? Can you remind us which products are most exposed to those in Veralto? Thanks.

Speaker #10: Hi. Thanks. Morning, everyone. Could you give us an update on what you're seeing on electronics inflation including memory with all of the demand on those products from data centers?

Speaker #10: Is there anything very unusual from a cost perspective or availability perspective? And can you remind us which products are most exposed to those in Veralto?

Speaker #10: Thanks.

Sameer Ralhan: No, thanks, Andrew. Great question. Our exposure in the electronics chain really comes through our instruments where we do use memory, we do use boards. These costs overall, when you kind of step back, Andrew, are pretty small fraction of the COGS. We're definitely seeing higher prices just like everybody else in the industry and frankly, broader economy. The impact at the Veralto level at this point is non-material. From our perspective, look, the procurement teams are working pretty actively. I wouldn't say that at this point we have had any issues of sourcing. It's a matter of pricing, but it's a small number that we are able to pass through.

Speaker #9: No, thanks, Andrew. Great question. Our exposure in the electronics chain really comes through our instruments, where we do use memory. We do use boards.

Speaker #9: These costs overall, when you step back, Andrew, are a pretty small fraction of COGS. We're definitely seeing higher prices, just like everybody else in the industry.

Speaker #9: And frankly, broader economy. But the impact of the Veralto level at this point is non-material. And from our perspective, look, the procurement teams are pretty working pretty actively.

Speaker #9: I wouldn't say that at this point we have had any issues of sourcing. It's a matter of pricing. But it's a small number that we are able to pass through.

Sameer Ralhan: At the same time, look, this is where from the R&D team's perspective, they're looking at things as well as to how we can design and optimize things in a higher memory, a higher semiconductor price environment as well. Those actions are helping mitigate the impact as well. It's not a material impact at the Veralto level is the punchline.

Speaker #9: At the same time—look, this is where, from the R&D team's perspective, they're looking at things as well, as to how we can design and optimize things in a higher memory or higher semiconductor price environment as well.

Speaker #9: So those actions are helping mitigate the impact as well. So it's not a material impact of the Veralto level is a punchline.

Andrew Krill: Okay, great. Very helpful. Switching gears, the Alfaa UV deal, I think didn't get a ton of airtime. Maybe can you just give us some more on, like, the growth rates? I believe the prepared remarks said double-digit growth this year. Is that sustainable? Maybe any help on margins now and where they could go as you use VES and integrate the company? Thanks.

Speaker #10: Okay, great. Very helpful. And then switching gears to the Alpha UV deal—I think it didn't get a ton of airtime—maybe could you just give us some more detail on the growth rates?

Speaker #10: I believe the prepared remarks said double-digit growth this year. Is that sustainable? And maybe any help on margins now, and where they could go as you use VES and integrate the company?

Speaker #10: Thanks.

Jennifer Honeycutt: Yeah. We're really happy to welcome Alfaa UV into the portfolio. This is a highly synergistic addition to our Trojan business, which continues to expand our footprint globally. Alfaa itself has a strong portfolio of competitive fit-for-purpose solutions, along with an established commercial presence in India. You can think about this as being a similar type of transaction relative to Aquafides, which is the UV business we acquired in Europe, and part and parcel to the geographic expansion that Trojan is doing. I think Alfaa also gives us an opportunity to expand in other high-growth markets with their portfolio. Trojan, Aquafides, and Alfaa all sort of fit together nicely to cover a variety of UV treatment applications, high flow, low flow, different kinds of water matrices and so on. Again, small business in India, but a double-digit grower, and we do believe that that's sustainable going forward.

Speaker #6: Yeah. We're really happy to welcome Alpha UV into the portfolio. This is a highly synergistic addition to our Trojan business, which continues to expand our footprint globally.

Speaker #6: Alpha itself has a strong portfolio of competitive fit-for-purpose solutions along with an established commercial presence in India. And you can think about this as being a similar type of transaction relative to Aquafetus which is the UV business we acquired in Europe.

Speaker #6: And part and parcel to the geographic expansion that Trojan is doing, I think Alpha also gives us an opportunity to expand into other high-growth markets with their portfolios.

Speaker #6: So, Trojan, Aquafetus, and Alpha all sort of fit together nicely to cover a variety of UV treatment applications—high-flow, low-flow, different kinds of water matrices, and so on.

Speaker #6: So again, small business in India, but a double-digit grower. And we do believe that that's sustainable going forward.

Andrew Krill: Thank you.

Speaker #10: Thank you.

Sameer Ralhan: Thanks, Andrew.

Jennifer Honeycutt: Thanks, Andrew.

Speaker #9: Thanks, Andrew.

Speaker #6: Thanks, Andrew.

Operator 2: Thank you. We will move next with Andrew Buscaglia with BNP Paribas. Please go ahead.

Operator: Thank you. We will move next with Andrew Buscaglia with BNP Paribas. Please go ahead.

Speaker #1: Thank you. We will move next to Andrew Buscaglia with BNP Paribas. Please go ahead.

Andrew Buscaglia: Hey, good morning, everyone.

Speaker #11: Hey. Good morning, everyone.

Jennifer Honeycutt: Good morning, Andrew.

Speaker #6: Good morning, Andrew.

Andrew Buscaglia: You guys sound rather positive, I think, on the past acquisitions you've made. I know that you paid some rich multiples for them, and people are looking for signs of synergies coming through. Would you say that they are tracking ahead of your expectation in terms of either growth or synergies? Could you just give us a little more color on that, please?

Speaker #11: So, you guys sound rather positive, I think, on the past acquisitions you've made. And I know that you paid some rich multiples for them, and people are looking for signs of synergies coming through.

Speaker #11: So, would you say that they are tracking ahead of your expectation in terms of either growth or synergies? And could you just give us a little more color on that, please?

Jennifer Honeycutt: Yeah. We've been really pleased with the deals that we've brought into Veralto since spin. I think what you see is we've accelerated in terms of deal volume, both in number and overall relative size. It's been balanced between PQI and water. We really like the spaces that we're in with both of those segments. I would say the vast majority of these deals have provided near-term synergies around sales acceleration and combining product portfolios, going to market with joint sales teams, and the like. We certainly, at least to date, have really focused on accelerating our overall growth profile, and these deals are doing exactly that. There is opportunity, clearly, for ongoing cost optimization and getting more margin out of these different assets.

Speaker #6: Yeah. We've been really pleased with the deals. I think what you see is we've accelerated in terms of deal volume, both in number and overall relative size.

Speaker #6: It's been balanced between PQI and water. We really like the spaces that we're in with both of those segments. And I would say the vast majority of these deals have provided near-term synergies around sales acceleration and combining product portfolios, going to market with joint sales teams and the like.

Speaker #6: So, we certainly, at least to date, have really focused on accelerating our overall growth profile, and these deals are doing exactly that. There is opportunity, clearly, for ongoing cost optimization and getting more margin out of these different assets.

Jennifer Honeycutt: That's all baked into integration plans and transition going forward, but we're really pleased with what we've seen in the top-line growth acceleration.

Speaker #6: And that's all baked into integration plans and transition going forward. But we're really pleased with what we've seen in the top-line growth acceleration.

Sameer Ralhan: Andrew, you're seeing that in the guidance, right? In the confidence that we have in the H2 and then as we're going to move forward. Part of that is driven by the growth profile of the transactions that we've done.

Speaker #9: And Andrew, you're seeing that in the guidance, right? In the confidence that we have in the second half, and then as we're going to move forward.

Speaker #9: Part of that is driven by the growth profile of the transactions that we've done.

Andrew Buscaglia: Yeah. Exactly. That's fair enough. Thank you. I know everything's kind of picked over at this point, so I wanted to ask a little more of a higher-level question. I get questions on your data center exposure and water, but I think there could be an interesting AI angle in PQI. I'm wondering if you see AI changing demand for things like inspection and marketing and coding. We're seeing this in some other adjacent industries I cover as well. What's your take at this point on AI influencing PQI?

Speaker #11: Yeah. Yeah. Exactly. That's fair enough. Thank you. Yeah. And I know everything's kind of picked over at this point. So I wanted to ask a little bit more of a higher-level question.

Speaker #11: I get questions on your data center exposure and water. But I think there could be an interesting AI angle and PQI. I'm wondering if you see AI changing demand for things like inspection and marketing and coding?

Speaker #11: We're seeing this in some other adjacent industries I cover as well. But yeah, what's your take at this point on AI influencing PQI?

Sameer Ralhan: Yeah, you're seeing that. Look, Andrew, as you know, as part of the GlobalVision, we laid out a little about that as well, right? In our digital workflow solutions more so, we are definitely seeing that. We are offering the AI application agentic kind of a layer kind of an applications on top of the solution that we provide to the customer. You're definitely seeing more on the digital workflow solutions side of the PQI. It's going to be expanding more and more, and we're making the investments even organically and from our talent perspective on that side as well. We're already offering products on that side to the customers.

Speaker #9: Yeah. You're seeing that. Look, as Andrew, as you know, we are part of the global vision. We laid out a little of that as well, right?

Speaker #9: So in our digital workflow solutions, more so, we are definitely seeing that. We are offering the AI application agentic kind of a layer kind of an applications on top of the solution.

Speaker #9: That we provide to the customers. So you're definitely seeing more on the digital workflow solution side of the PQI. I mean, it's going to be expanding more and more.

Speaker #9: And we're making the investments even organically and from our talent perspective and that side as well. So we're already offering products on that side to the customers.

Jennifer Honeycutt: Yeah, GlobalVision is squarely in that space, right?

Speaker #6: Yeah, and Global Vision is squarely in that space, right? What Global Vision brings to the table is a deterministic inspection engine, and it's designed to produce the same answer every time.

Andrew Buscaglia: Right.

Jennifer Honeycutt: What GlobalVision brings to the table is a deterministic inspection engine, right? It's designed to produce the same answer every time, because in regulated workflows, brand owners can't tolerate any room for error. These are reliable, repeatable processes with proprietary datasets that will render the accurate answer every time, right? The Esko, TraceGains, and GlobalVision teams are effectively all working together to employ AI throughout that workflow because it will allow more mistake-proofing and faster time to market while meeting regulatory requirements and traceability criteria.

Speaker #6: Because in regulated workflows, brand owners can't tolerate any room for error. So these are reliable, repeatable processes with proprietary data sets that will render the accurate answer every time, right?

Speaker #6: So and the ESCO trace gains and Global Vision teams are effectively all working together to throughout that workflow because it will allow more mistake-proofing and faster time to market while meeting regulatory requirements and traceability criteria.

Andrew Buscaglia: Yeah. Interesting. Okay. Thanks, Jennifer.

Speaker #11: Yeah. Interesting. Okay. Thanks, Jennifer.

Jennifer Honeycutt: You bet.

Speaker #6: You bet.

Operator 2: Thank you. We will move next with Brian Lee with Goldman Sachs. Please go ahead.

Operator: Thank you. We will move next with Brian Lee with Goldman Sachs. Please go ahead.

Speaker #1: Thank you. We will move next to Brian Lee with Goldman Sachs. Please go ahead.

Brian Lee: Hey, good morning, everyone. Thanks for squeezing me in. I know a lot's been covered, so maybe a quick one from me. I'll take these offline. Just on high growth markets, maybe some comments around the outlook there, potential for further re-acceleration and growth. I know that North America and Western Europe have been really strong throughout the year on a relative basis. If you could maybe touch upon kind of what you're seeing out there and the forward outlook for the high growth markets. Thanks.

Speaker #12: Hey. Good morning, everyone. Thanks for squeezing me in. I know lots have been covered. So maybe a quick one from me. And I'll take these offline.

Speaker #12: Just on high-growth markets, maybe some comments around the outlook there—potential for further reacceleration and growth. I know that North America and Western Europe have been really strong throughout the year on a relative basis.

Speaker #12: So if you could maybe touch upon kind of what you're seeing out there and the forward outlook for the high-growth markets. Thanks.

Jennifer Honeycutt: Yeah. High growth markets were relatively flat. We see a little bit of a tale of two cities here between PQI and water. For our China business, we've got strong growth in PQI, and we've got a little bit of shrink on the water side. I would say Latin America as well continues to see good order rates. Sales are a little bit down year over year, and they're improving sequentially. I think we see underlying demand that remains strong, but we do see some timing delays in projects that are there. Again, we continue to watch and focus on execution between these different markets around the world. We're pleased with what we see in recovery in China for PQI. Still waiting for water to recover there in terms of traction. We're watching Latin America closely.

Speaker #6: Yeah, so high-growth markets—we're relatively flat. We see a little bit of a tale of two cities here between PQI and Water. For our China business, we've got strong growth in PQI.

Speaker #6: And we've got a little bit of shrink on the water side. I would would say Latin America is well continues to see good order sales are a little bit down year over year.

Speaker #6: Sequential, and they're improving sequentially. I think we see underlying demand that remains strong, but we do see some timing delays in projects that are there.

Speaker #6: So again, we continue to watch and focus on execution between these different markets around the world, and we're pleased with what we see in recovery in China for PQI.

Speaker #6: Still waiting for water to recover there in terms of traction. And then we're watching Latin America closely.

Brian Lee: All right. Thank you. Appreciate the color.

Speaker #12: All right. Thank you. Appreciate the caller.

Jennifer Honeycutt: You bet.

Speaker #6: You bet.

Ryan Taylor: Thanks, Brian. This is Ryan Taylor. We appreciate everybody that was able to engage with us on the call. At this time, we have hit our time limit, our 45 minutes for the call, so we're going to have to cut it off here. As usual, I'll be available for follow-ups throughout today and over the course of the next several days. We thank everybody for joining us, and we'll talk to you next time.

Speaker #2: Thanks, Brian. This is Ryan Taylor. We appreciate everybody that was able to engage with us on the call. At this time, we have hit our time limit.

Speaker #2: Our 45 minutes for the call. So we're going to have to cut it off here. As usual, I'll be available for follow-ups throughout today and over the course of the next several days.

Speaker #2: We thank everybody for joining us, and we'll talk to you next time.

Operator 2: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Q2 2026 Veralto Corp Earnings Call

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